FERC on Friday ordered a paper hearing on the PJM transmission owners’ proposed tariff revisions to add network upgrades to their rate base, requesting more information be provided within 45 days (ER21-2282).

The commission accepted and suspended the TOs’ filing for five months, to become effective Feb. 1, subject to refund and to the outcome of the paper hearing procedures.

“We find that the proposed revisions have not been shown to be just and reasonable, and may be unjust, unreasonable, unduly discriminatory or preferential, or otherwise unlawful, and that the record would benefit from further information,” the commission said.

The commission in August had directed the TOs to provide evidence backing up claims that their ability to raise capital is being threatened because they must absorb the risks of increasing transmission upgrades without earning returns on the assets. The TOs responded in September, arguing that PJM’s tariff provides them with the “express authority” to make changes to any of its sections relating to transmission revenue requirements, cost allocation or cost recovery. (See PJM TOs Respond to FERC Questions on Rate-base Network Upgrades.)

The TOs had asked FERC on June 30 to allow them the option to fund network upgrades and add them to their rate bases. Under PJM’s “participant funding” model approved in 2004, generators provide the capital for network upgrades, while the additional infrastructure is added to rate bases at zero cost, allowing TOs to recover only their operations and maintenance expenses from network transmission customers.

According to the TOs, PJM’s 2020 Regional Transmission Expansion Plan (RTEP) showed that the total estimated costs of network upgrades to interconnect new generating resources was about $6.5 billion, which included $1.56 billion of upgrades already constructed and in service and $4.9 billion in active projects in the queue.

The TOs argued that even if a portion of the $4.9 billion of network upgrades in the queue were constructed, it would represent a “significant escalation” of the $1.56 billion of network upgrades they currently own or operate and for which they are currently not earning a return.

“They are concerned that this trend will continue as the number of new generation interconnection requests is expected to increase significantly, if not exponentially, in the coming years as the electric power industry continues to accelerate the development and construction of clean renewable energy resources,” FERC said.

But the commission said a preliminary analysis of the proposed revisions did not show them to be just and reasonable. FERC requested comments on a series of questions in the paper hearing.

The first question posits that the TOs’ proposed revisions are premised on their arguments that owning and operating network upgrades “entails significant risks for which PJM TOs do not earn a return or profit.” FERC asked if the risks TOs’ argue are associated with owning and operating network upgrades are “already incorporated into PJM TOs’ commission-approved ROEs, such that PJM TOs are already compensated for these alleged risks.”

FERC also asked what protections the proposed revisions provide against the “potential for undue discrimination” by the TOs in their choice of which network upgrades will be funded.

Another question asked if the proposed revisions could result in increased costs to interconnection customers “relative to the costs to initially fund network upgrades” if those same customers were able to obtain financing at lower or similar rates than the TOs.

Responses to the questions are due 45 days from the date of the order, and reply comments can be submitted 45 days after the due date of initial comments.

FERC Commissioner James Danly issued a concurring statement, saying that the “voluminous record” on the issue led him to the conclusion that the commission already has “sufficient” evidence to accept the tariff changes, but he recognized that his “colleagues still have questions.”

“While I have previously expressed concerns over improper delay tactics masquerading as requests for additional, unneeded information, the questions set for hearing are such that I do not oppose obtaining additional evidence here,” Danly said.